Collapse of Russian Business Hurts DigitalGlobe’s Commercial Sales

The fall of the Russian ruble and the apparent disinclination of some Russian authorities to deal with an American satellite imagery company at a time of heightened geopolitical tensions has been an issue for DigitalGlobe for over a year.DigitalGlobe image of fighter jets and helicopters at Primorko-Akhtarsk Air Base, Russia. Credit: DigitalGlobe

PARIS — Satellite geospatial imagery provider DigitalGlobe on April 30 said that its Russian market has essentially — and unexpectedly — collapsed, dragging down the company’s commercial-market sales performance for the first three months of 2015.

The fall of the Russian ruble and the apparent disinclination of some Russian authorities to deal with an American satellite imagery company at a time of heightened geopolitical tensions has been an issue for DigitalGlobe for over a year.

But instead of stabilizing this year, the company’s Russian business has just about flat-lined. From $1.2 million for the first three months of 2014, Russian revenue sank to just $100,000 for the three months ending March 31.

DigitalGlobe CEO Jeffrey R. Tarr. Credit: DigitalGlobe

DigitalGlobe Chief Executive Jeffrey R. Tarr said most recent decline was “geopolitical,” but he did not address whether Russia’s market has closed to DigitalGlobe competitors to the same extent.

Russia was the most dramatic reason for the overall drop of 7.3 percent in Longmont, Colorado-based DigitalGlobe’s non-U.S. government revenue. Other unidentified commercial customers also purchased less imagery.

In addition, DigitalGlobe’s decision early this year to remove the aging Ikonos satellite from service has forced a renegotiation of contracts with some of the company’s Direct Access Program (DAP) customers, who sign long-term contracts to purchase a set amount of capacity, often with the ability to directly task the satellites over their territory.

In a conference call with analysts, Tarr said the DAP customers’ transition to the company’s other satellites — four are in operation — should return that market to growth later this year. The current 12-month backlog of orders from DigitalGlobe’s 10 DAP customers as of March 31 stood at $70.5 million, up 9 percent from a year ago.

In an April 30 filing with the U.S. Securities and Exchange Commission, DigitalGlobe said it paid $1.6 million between January and March just to store the satellite.

Also growing is DigitalGlobe’s business in the Middle East and China. While China has begun to launch its own satellites with a ground resolution of around 1 meter, DigitalGlobe’s 30-centimeter imagery, available from its WorldView-3 satellite, gives the company the same advantage in China that it has in other nations with lower-resolution domestic satellites, Tarr said.

To broaden the company’s higher-resolution product offering, and to make a higher percentage of high-resolution imagery available to commercial customers, DigitalGlobe has removed its WorldView-4 satellite, formerly named GeoEye-2, from storage to prepare for a mid-2016 launch aboard a U.S. Atlas 5 rocket.

Now out of storage, WorldView-4 will be refitted with “certain necessary enhancements” as undergoes preparations for launch. Tarr declined to specify what enhancements would be done, saying only that they would not require the company to increase capital spending this year beyond the $110 million already announced.

The brightest spot in DigitalGlobe’s picture remains the U.S. National Geospatial-Intelligence Agency’s EnhancedView contract, which accounted for nearly 50 percent of its $169.4 million in revenue for the three months ending March 31.

Total revenue was up 8 percent over the same period a year ago, with U.S. government revenue up 17.6 percent, due in part to the entry into service of WorldView-3 and the EnhancedView contract’s resulting step-up in monthly payments.

DigitalGlobe is gradually building its archive of 30-centimeter imagery. The company has multiple competitors in Europe, the Middle East and Asia, and many governments are now buying their own satellites for their domestic use. But DigitalGlobe remains the sole provider of commercially available 30-centimeter imagery.

WorldView-4, formerly GeoEye-2. Credit: DigitalGlobe

WorldView-4, offering roughly the same resolution as WorldView-3, will permit DigitalGlobe to address more commercial demand since much of WorldView-3’s capacity is reserved for the U.S. government under EnhancedView.

Tarr said the company has been successful in driving price increases for 30-centimeter imagery for those customers, including many governments, that insist on the highest-possible image sharpness.

Tarr had told investors that a 30-centimeter product would also allow the company to go toe-to-toe with the global aerial-imagery market. Tarr reiterated that during the April 30 call, saying today’s market for 30-centimeter aerial imagery is valued at between $900 million and $1 billion per year.

Longer term, DigitalGlobe is likely facing a new competitor as the U.S. and other governments gradually open commercial airspace to unmanned vehicles. Tarr said he could imagine DigitalGlobe partnering with one or more drone operators to as part of a multiplatform commercial offer, just as the company has done with aerial image providers.